In the last 10 years, markets have not been as volatile as has been in the last 10 days. There have been a number of factors at play over the last week or so. Coronavirus (COVID-19), unprecedented fall in crude oil prices and the YES Bank reconstruction proposal have all contributed to the fall.
As regards coronavirus, it is very difficult to give a timeline as when things will recover. However, if one looks at China, the country where the virus started, there the number of cases peaked out around mid-February – from 10,000-12,000 cases earlier, the number has come down drastically. Broadly, it has taken China around one month to move from peak cases to near-to-zero. Currently, the countries where virus cases are picking up are Italy and Iran. And, the US could be next to fall prey. So basically, it will take one-and-a-half months more to come to a conclusion as how bad things are. The longer the coronavirus takes to peak out, the longer it will take the economy to recover.
I think for the next 15 days, each day is critical. The day the number of cases comes down in Europe and the US, markets will react positively. Investors will take China example and then extrapolate how things will play for the affected economies / areas.
However, Indian economy won't be impacted that much till virus cases pick-up significantly. Its dependence on exports is not very high. So, in my view, it will take another one-and-a-half to two months for the coronavirus factor to play out. Globally, it's going to take up to six months for economic recovery to happen.
In India, so far, there has been no destruction from Coronavirus. People are so afraid that economic activity has come to a standstill. They don't want to travel, don't want to order a pizza, don't want to party. So, net-net economic activity will contract for sure but as the fear goes away from the people's mind, things will turn back to normalcy.
Meanwhile, correction in oil will be a big positive for the Indian economy. Even if it goes up to $45/barrel, it would still be lower from the earlier level of $65 - $70. A $20 correction in a year in oil prices translates into $30 billion in savings for India, which is huge. To put it in perspective, it's more than 1 per cent of gross domestic product (GDP) and this can turn into a very big stimulus as it will be shared by all the key stakeholders – the government, consumers and oil marketing companies (OMCs). This is one big positive that should accrue to India.
The one question on everyone’s mind is what market strategy to adopt now.
Panic-selling is always good for new buyers and bad for sellers. So for a new buyer, there couldn't be a better time in the last one year to buy stocks because valuations are attractive. I don't know when the market will bottom out. That said, investors will definitely make money in the next three or six months.
Those who are sitting on sidelines with cash should invest now. In the last one month, there has been across-the-board correction. Basis the risk appetite, one can put money in any segment of the market. The time is right.
Aditya Khemani is a fund manager at Motilal Oswal AMC. Views are personal.
(As told to Swati Verma)